Why China Could Bring the Upside Surprise for Apple and the iPhone 11

Apple Inc. (NASDAQ: AAPL) is on the verge of releasing its newest generation of iPhone, the iPhone 11 and iPhone 11 Pro. While the United States is a huge market for Apple, China could play an even bigger role this year, according to one analyst.

Wedbush noted that it is seeing delivery times extend for iPhone 11 preorders across a range of colors and models this week, with its expectations now that iPhone launch units could exceed 75 million (original street expectations were about 70 million) given underlying demand, especially in China.

The base model iPhone 11 currently is seeing preorder activity in the all-important China region that is “roughly double” from a year ago with XR, as it appears the lower price points, dual camera functionality and added colors are hitting the sweet spot for consumers that have waited to upgrade.

To put numbers around this, with Wedbush’s estimation that 60 million to 70 million iPhones in China are currently in the “window of an upgrade opportunity” this is an integral time for Apple to be successful in China and capture these upgrades.

With lower-priced competition across the board, the price cut this time around seems to be a smart strategy for Apple that is already paying dividends, with many Chinese consumers looking at iPhone 11 as the right phone/price points/specs to upgrade, which is key as Huawei and others look to capitalize on the current environment and convert Apple consumers to domestic Chinese smartphones in light of trade tensions.

Wedbush detailed in its report:

With the official launch this Friday with phones hitting the shelves around the world, we expect lines at the flagship stores to exceed the last two releases as roughly 1/3 of the 900 million iPhone users globally have not upgraded their smartphones in more than 3 years and we are modeling many will upgrade to iPhone 11/iPhone 11 Pro this time around. To this point, we now estimate iPhone units could exceed 185 million for FY20 based on the initial demand trajectory out of the gates and show modest YoY growth which is major fuel in the tank as Apple looks to further monetize these customers through services (streaming service launching November 1) as its next leg of growth.

Wedbush reiterated an Outperform rating with a $245 price target, implying upside of 11% from the most recent closing price of $220.70.

Shares of Apple traded up 0.5% to $221.84 on Wednesday, in a 52-week range of $142.00 to $233.47. The consensus price target is $224.48.